03/13/2009 11:00 AM Senate ENERGY
| Audio | Topic |
|---|---|
| Start | |
| SB132 | |
| SB54 | |
| SB71 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 54 | TELECONFERENCED | |
| *+ | SB 131 | TELECONFERENCED | |
| *+ | SB 132 | TELECONFERENCED | |
| *+ | SB 71 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON ENERGY
March 13, 2009
11:05 a.m.
MEMBERS PRESENT
Senator Lesil McGuire, Chair
Senator Lyman Hoffman
Senator Albert Kookesh
Senator Bert Stedman
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 132
"An Act relating to the Southeast energy fund."
MOVED SB 132 OUT OF COMMITTEE
SENATE BILL NO. 54
"An Act making sales of and offers to sell certain energy
resources by a refiner at prices that are exorbitant or
excessive an unlawful act or practice under the Alaska Unfair
Trade Practices and Consumer Protection Act."
MOVED CSSB 54(ENE) OUT OF COMMITTEE
SENATE BILL NO. 71
"An Act relating to alternative energy systems for public
works."
MOVED SB 71 OUT OF COMMITTEE
SENATE BILL NO. 131
"An Act relating to net energy metering for retail electricity
suppliers and customers."
BILL POSTPONED
PREVIOUS COMMITTEE ACTION
BILL: SB 132
SHORT TITLE: SOUTHEAST ENERGY FUND
SPONSOR(S): SENATOR(S) STEDMAN
02/27/09 (S) READ THE FIRST TIME - REFERRALS
02/27/09 (S) ENE, RES, FIN
03/13/09 (S) ENE AT 11:00 AM BUTROVICH 205
BILL: SB 54
SHORT TITLE: PRICE GOUGING INVOLVING ENERGY RESOURCES
SPONSOR(S): SENATOR(S) WIELECHOWSKI, ELLIS, FRENCH
01/21/09 (S) PREFILE RELEASED 1/16/09
01/21/09 (S) READ THE FIRST TIME - REFERRALS
01/21/09 (S) ENE, RES, JUD
02/12/09 (S) ENE AT 11:00 AM BUTROVICH 205
02/12/09 (S) Heard & Held
02/12/09 (S) MINUTE(ENE)
03/13/09 (S) ENE AT 11:00 AM BUTROVICH 205
BILL: SB 71
SHORT TITLE: ALTERNATIVE ENERGY FOR PUBLIC WORKS
SPONSOR(S): SENATOR(S) THERRIAULT
01/21/09 (S) READ THE FIRST TIME - REFERRALS
01/21/09 (S) ENE, RES, FIN
03/13/09 (S) ENE AT 11:00 AM BUTROVICH 205
WITNESS REGISTER
SENATOR STEDMAN
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 132.
DARWIN PETERSON
Staff to Senator Stedman
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Commented on SB 132.
ROBERT VENABLES, Energy Coordinator
Southeast Conference (SEC)
POSITION STATEMENT: Supported SB 132.
GORDON WROBEL
Elfin Cove Nonprofit Corporation
Elfin Cove, AK
POSITION STATEMENT: Supported SB 132.
ANDREW THOMAS, Executive Director
Sitka Conservation Society
POSITION STATEMENT: Supported SB 132.
ED SNIFFEN, Assistant Attorney General
Department of Law
POSITION STATEMENT: Answered questions about SB 54.
DANA OLSON, representing herself
POSITION STATEMENT: Commented on SB 54 and SB 71.
JEFF COOK, Director
External Affairs
Flint Hills Resources Alaska
POSITION STATEMENT: Opposed SB 54.
KIP KNUTSEN, Manager
External Affairs
Tesoro Alaska
POSITION STATEMENT: Opposed SB 54.
DAVE STANCLIFF
Staff to Senator Gene Therriault
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Presented SB 71 for the sponsor.
CHIRISTOPHER HODGIN, Project Manager
Department of Transportation and Public Facilities (DOTPF)
POSITION STATEMENT: Explained how SB 71 would affect the
department's design activities.
JEFF HERMANS, Tok area Forester
Division of Forestry
Department of Natural Resources (DNR)
POSITION STATEMENT: Supported SB 71.
SENATOR GENE THERRIAULT
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 71.
ACTION NARRATIVE
11:05:28 AM
CHAIR LESIL MCGUIRE called the Senate Special Committee on
Energy meeting to order at 11:05 a.m. Senators Wielechowski,
Stedman, and McGuire were present at the call to order.
SB 132-SOUTHEAST ENERGY FUND
11:06:30 AM
CHAIR MCGUIRE announced the consideration of SB 132.
SENATOR STEDMAN, sponsor of SB 132, said this issue is partially
left over from back when the state created the Railbelt Energy
Fund. During that era there was a lot of need to expand energy
systems throughout the state, and the state is in that arena
again a couple of decades later. So, he went back in and "dusted
off some old language" and found what the state has to help
communities move forward with alternative energies, particularly
Southeast hydro. A lot of focus has been on getting gas to
Alaskans, but Southeast is a little detached from the main
corridor of the gas line; so this would be our bullet line.
CHAIR MCGUIRE agreed that the legislature has spent a lot of
time talking about a gasline for rural and western Alaska, but
not as much on Southeast.
DARWIN PETERSON, staff to Senator Stedman, said SB 132 provides
a funding mechanism for construction of power generation
projects in Southeast and for completion of the regional
electric grid. The state's goal should be to provide low-cost,
renewable energy to all Alaskans, and natural gas doesn't
satisfy the energy needs of every region of the state.
The communities in Southeast have a long history of working
towards the long-term goal of energy independence by
collaborating on power generation and transmission. However,
most communities in the region still are not on hydro power and
the majority still burn oil to generate electricity and heat. In
addition, many of the hydroelectric assets in Southeast are at
or near capacity which severely limits regional economic growth
opportunities, and while hydroelectric projects provide low-
cost, renewable power over the long-term, they are extremely
capital intensive - as high as $1.5 billion for completing the
electric grid. The state has a critical role to play in
capitalizing these projects on the front end, and SB 132
broadens the authority of the existing Southeast Energy Fund to
provide that mechanism. The list of critical hydroelectric
projects that may be funded through the Southeast Energy Fund
include:
· Ketchikan-Whitman Lake Hydroelectric Project
· Petersburg-Ruth Lake Hydroelectric Project
· Sitka-Takatz Lake Hydroelectric Project
· Metlakatla Intertie to Ketchikan Sitka-Blue Lake
Hydroelectric Project
· Prince of Wales Island Intertie Reynolds Creek
Hydroelectric Project
· Falls Creek Hydroelectric Project
· Kake-Petersburg Intertie Metlakatla-Triangle Lake
Hydroelectric Project
11:10:07 AM
SENATOR STEDMAN said a map in their packets indicates current
and future electrical intertie projects. The black line
connecting some blue dots from Ketchikan to Wrangell is totally
constructed or it will be energized this summer. The portion
between Tyee Lake and Swan Lake, which basically hooks Ketchikan
to Petersburg and Wrangell should be energized sometime this
summer. The subcomponent of the Southeast intertie is to balance
the draw on those two dams.
The grey line going to Kake is in the proposed stage and is an
access road and power line. Kake runs totally on diesel fuel and
has a fishing fleet, a cold storage and fish processing within
the community as well as home heating and commercial business
needs. It has a population of about 600 people. That is the next
community they are trying to hook up along with Metlakatla on
the southern end. Metlakatla has excess power and they are in
the process of hooking it up to Ketchikan with a little less
than a mile of submarine cable. These connections are being done
in an incremental methodical order so when the highly capital
intensive hydros gets built, all the juice can be drawn out of
them almost immediately to offset the high capital cost.
11:13:46 AM
SENATOR STEDMAN said Ruth Lake, a little north of Petersburg, is
under consideration for a new hydro sight; Takatz, a 28 mgW dam
is north and east of Baranof Island. Thayer Lake would feed
Angoon, but getting that on line will be a multi-decade process.
Juneau has Lake Dorothy and Snettisham, but has no power source
coming out of the north end. So the intertie will have some
redundancy, particularly for Juneau, either through Greens Creek
out of Takatz or from Haines/Skagway down. So, if the power
lines are lost like what has happened in the last two winters in
Juneau, it can still run on hydro. Multiple meetings are
happening within the region to get all the communities working
together, not much unlike what they are trying to do with the
Railbelt energy utilities; so they are moving forward.
SENATOR STEDMAN reminded them of the misconception that
Southeast is all on hydro and therefore they have very
inexpensive energy sources, but most of the homes in the
communities on hydro, Juneau and Sitka are examples, heat with
diesel fuel and the hydro is at or near capacity. Sitka is
looking at extending the height of Blue Lake Dam and increasing
its generation capacity to hold the community over till Takatz
gets built. Lake Dorothy is another one that is going to be put
in, in phases. The projects are very expensive capital-wise and
cheap to operate. But they want to make sure in solving the
energy needs of Anchorage, Fairbanks, and the Kenai Peninsula
that they also look south and west to the Alaskans that live
along the coast and come up with a statewide energy solution.
SENATOR STEDMAN said Alaska may be the wealthiest state in the
nation, but he wants to make sure the state can take care of its
energy needs and can develop and expand its employment and
educational opportunities. The need to expand hydro capacity in
Southeast is directly tied to the area's employment and economic
stagnation. "If we don't find some way to create competitively
priced energy, then we're going to continue to have stagnation
problems in Southeast." This bill puts the Southeast Energy Fund
in front of the legislature to consider as a tool as it moves
forward to solve the energy needs of all Alaskans.
SENATORS KOOKESH and HOFFMAN joined the committee a while ago.
11:18:08 AM
SENATOR KOOKESH said the sponsor statement mentions $1.5 billion
for the fund, and he wanted people to understand that this just
establishes the fund, but the money would go into it over time.
SENATOR STEDMAN said that is correct. A FERC process is under
way at Ruth Lake, and Takatz probably wouldn't be ready for
construction in six or seven years at the earliest. There is
also interest in coming up with a more formal regional plan so
everyone including the state agrees on the order in which
projects will be constructed. So they can take steps precisely -
because the projects will most likely it will be done with heavy
debt loads and some equity help from the state and communities.
11:20:05 AM
CHAIR MCGUIRE asked about what kind of jobs will come out of
these projects.
SENATOR STEDMAN said Mahoney Lake in Ketchikan is 9.6 mgW,
Takatz is possibly 28 mgW or larger and may cost $250 million.
If they could get to the point of having an orderly and fairly
quick build out over a period of 15 years, tunnel crews could be
kept busy, but that is probably optimistic. Most of the tunnel
crews and special crews are brought in. A lot of operating
engineers, laborers, and truck drivers will be needed - roads
will have to be built. It would help employ a lot of
construction forces and give communities' members an opportunity
to have some high-paying Davis Bacon jobs through that process.
The whole town of Sitka boomed for a couple of years when it
built Green Lake in the mid-80s. Juneau still feels the economic
stimulus from the construction of Lake Dorothy.
11:21:57 AM
CHAIR MCGUIRE said there may be some opportunities for hydro
specialties in education at the University of Alaska Southeast,
which is a unique place for hydro - and folks may want to be
experts.
MR. PETERSON said the Southeast Energy Fund already exists in
statute, but is just being amended. The original Southeast
Energy Fund was project-specific to deal with Swan Lake and Tyee
Lake hydro projects. SB 132 just amends that existing fund to
look at a broader scope of energy projects, not just hydro.
CHAIR MCGUIRE asked Senator Stedman if any other energy projects
are out there.
SENATOR STEDMAN said there is interest in tidal. Not shown on
the map is a connection up the Bradfield Valley into the
Canadian grid, which would allow them to import or sell power.
That is part of the Southeast long range plan. Some geothermal
possibilities are located near Ketchikan, Baranof Island and the
north end of Hoonah Sound.
11:24:29 AM
ROBERT VENABLES, Energy Coordinator, Southeast Conference (SEC),
supported SB 132. He said the SEC is a private membership
organization that is one of the state's many ARDORs (regional
development organizations) it is also the federally recognized
economic development district representative. The Railbelt
Energy Fund, mentioned earlier, was established in 1986 and
between 1986 and 2005 a total of $486 million was appropriated
to it; $437 million of that was appropriated for various energy
projects in that region including the Susitna Bradley Lake, the
Alaska northern and southern interties as well as the Healy Co-
generation project. In 1993 lawmakers amended that fund's
enabling legislation to include a broader authorization for
programs and projects and other expenditures to assist in
meeting the Railbelt's energy needs much like SB 132 will amend
the Southeast Energy Fund.
In 1997, the Southeast Conference formed an energy committee,
originally called the Intertie Committee, committed to working
on the development of the regional electrical grid system in
Southeast. This is not a new idea. Plans go back as far as the
1920s. The Alaska Energy Authority (AEA) put together what they
said would be a 20-year plan to put together the Southeast
electrical intertie system in the 1980s. Had it been funded,
communities would already be plugged into it. But unfortunately,
when the price of oil goes up, everyone panics, then when it
goes down again, they say we can't afford it. So when prices
spike again we are unprepared - although he has heard that this
time it is different.
11:27:32 AM
MR. VENABLES said progress is being made and the best example is
the 57-mile Swan/Tyee intertie that connects those communities
and allows the next logical legs to Metlakatla and Kake to be
interconnected to that grid system. In 1997 when the Southeast
Conference formed the committee, it commissioned Hatch Acres to
put together a study that was called "The Southeast Alaska
Electrical Intertie System Plan," and that has been their
blueprint for all of their efforts to date. As Senator Stedman
mentioned, that plan needs to be updated with a new integrated
resource plan. It is the report that the U.S. Congress in
February 2001 authorized and cited in public law (Pub.L.) 106-
511 and authorized $384 million to develop this intertie along
with a 20 percent match from private and state sources. So, if
the state does put money aside, the authorization and plan are
in place. Since the 1997 Acres report and the 2001 Congressional
authorization, the SEC has continued to work with its member
communities and funding partners such as USDA Rural Development,
the Denali Commission, and the State Legislature to further
develop the regional electrical intertie system.
While progress is being made, there are many energy needs in the
region that are costly to build without any funding mechanism
available. Today the intertie system needs they are focusing on
are two-fold - the obvious need for the physical links that
connect the transmission lines community to community, and
funding for the HB 152 grants that AEA has forwarded for the
legislature's approval that have allowed many of these projects
to move forward.
11:30:07 AM
MR. VENABLES said that the estimated cost for developing such an
intertie system is now approaching $500 million. Obviously it
can't be done all at once, but a plan is needed and this will
help fund it in an orderly fashion.
The second system need is to develop capacity along the line to
meet the ever-increasing growth of electrical use. The spike in
oil prices last year brought that to the fore. Also, it is
needed to quicken the pace towards conversion from diesel
generated space heat to electrical, which is already consuming
the excess capacity in many of the communities that are having
to supplement their hydro with diesel or they can see the date
that diesel will have to be run on a regular basis.
He said that many projects in Southeast can meet these growing
needs and the map is just a snapshot. Southeast Alaska has been
called the Saudi Arabia of hydro. The intertie allows resources
to be developed that aren't just within a community. Some
communities will be forced to do biomass or geothermal and that
can be fed into the grid system and can become economic engines
and opportunities for all the communities. Often technology is
not quite ready like with tidal and wind, but as they become
more cost effective, it can all be integrated.
11:32:26 AM
MR. VENABLES said the Southeast communities have worked together
to forge a vision to develop its vast renewable resources into a
regional electrical intertie system, but a funding mechanism to
construct such a system still alludes them. SB 132 can be the
needed mechanism.
CHAIR MCGUIRE asked if the federal stimulus package has any
monies that might be coming to municipalities to assist in
development in this area.
MR. VENABLES replied that even if they were shovel ready, which
they are not, the stimulus package is designed to ignore hydro
development. He has heard of some discussions within the
legislature on writing a resolution urging a new definition for
renewable resources because of that. The other point is that the
shovel-ready status, because they have not been able to commit
resources to design and get projects ready, they would not be
ready to do very many projects within the 90-day time frame many
are talking about.
11:34:12 AM
CHAIR MCGUIRE said the potential for exporting energy to
Canadian neighbors and attracting manufacturing and jobs in
terms of low cost energy is another potential opportunity. SB 31
that Senator Stedman has been helping her with has a production
tax credit for renewable energy, and hydro has been specifically
included in that definition. She is hoping that will give some
moral authority to his conversation. Oregon has allowed hydro to
remain a part of its definition of renewable energy, but
Washington State has chosen not to.
11:35:20 AM
GORDON WROBEL, Elfin Cove Nonprofit Corporation, said Elfin Cove
is 85 miles due west of Juneau on Chichagof Island. It sits on
top of one of the most prolific fisheries in all of Alaska. He
supported SB 132 because it provides support for small
communities like his that are interested in eliminating their
dependence on fossil fuel generation. Currently they are paying
about 50 cents per kilowatt; at that rate virtually all economic
development that is energy dependent is not possible for them to
be competitive.
11:36:40 AM
ANDREW THOMAS, Executive Director, Sitka Conservation Society,
supported SB 132 saying Sitka is very excited about increasing
the potential for developing renewable energy resources there. A
lot of different entities in the community have been looking at
how to develop their renewable energy in Sitka and how to take
action on climate change. In addition to all the economic
benefits this bill will create in terms of community resiliency
and sustainability, and long-term economic development, it will
help them get away from using oil. Sitka has two hydro electric
facilities that were installed in 1950 and in 1980. The one in
the 1980s was built in response to the 1970 oil crisis.
Currently their total energy budget is 80 percent oil and 20
hydroelectric. This bill will provide an opportunity for Sitka
to really develop its renewable energy resources and it is a
priority for the community to take action on climate change.
This bill will help them continue to do that.
11:38:24 AM
SENATOR STEDMAN moved to report SB 132 from committee with
individual recommendations and attached zero fiscal note(s).
There being no objection, the motion carried.
SB 54-PRICE GOUGING INVOLVING ENERGY RESOURCES
11:39:17 AM
CHAIR MCGUIRE announced the consideration of SB 54.
SENATOR WIELECHOWSKI, sponsor of SB 54, moved to adopt the
committee substitute (CS) to SB 54, labeled LS0209\S. There
being no objection, the motion carried.
SENATOR WIELECHOWSKI introduced his staff, George Ascott, who
presented this bill at the last hearing. Based on the testimony
then, the bill was modified slightly. A provision was deleted
that created an objective defined standard for "excessive" and
"exorbitant" to be 10 percent above the price that it was sold
for by Seattle refineries. This concern was raised by the
refiners; and the CS still keeps the bill strong and
accomplishes the objective.
ED SNIFFEN, Assistant Attorney General, Department of Law, said
his duties include enforcement of Alaska's Consumer Protection
Act, and SB 54 would make excessive or exorbitant prices by a
refiner a violation of the act that would fall within his
authority to enforce.
He explained that making an act a violation of the Consumer
Protection Act creates an opportunity for private individuals to
also bring an action to stop the conduct. That may be something
that hasn't been considered. Otherwise he has no comments and
was available to answer questions.
11:42:17 AM
SENATOR STEDMAN asked how "exorbitant or excessive" is defined
on page 1, line 10.
MR. SNIFFIN replied that it is a fairly broad description and
there is no current case law that addresses exorbitant or
excessive prices in a consumer context. This language tracks
language that is used in price gouging laws from some East Coast
states that prohibit exorbitant or excess prices. He is hopeful
that those laws would give some guidance on exactly what that
means, but the standard is fairly broad and they would have to
work with it as best they can.
11:43:44 AM
SENATOR WIELECHOWSKI said he was simply trying to accommodate
testimony from the refiners, and he would be happy to go back to
the original language. Otherwise excessive and exorbitant will
ultimately be defined by the courts.
CHAIR MCGUIRE said most states have a price gouging statute on
the books, and asked if in Mr. Sniffen's analysis of those if he
found that they used "excessive and exorbitant."
11:45:15 AM
MR. SNIFFEN answered that the statutes he looked at used a
variety of descriptions for conduct that should be stopped. For
example, when Hurricane Katrina hit, Louisiana's price gouging
statute went into effect. Their statute says during the state of
a natural disaster or a declared state of emergency, if you
charge prices in excess of a certain percentage above the price
that was charged 30 days before the disaster that is considered
to be exorbitant or excessive. A lot of the price gouging
statutes are keyed around prices that were in effect prior to a
state of emergency and they say a price above a certain
percentage can't be charged over that preexisting price. Alaska
is not trying to key this provision to a declared state of
emergency. Without a definition, they would have to see what the
courts would say about it as it works through the enforcement
process.
CHAIR MCGUIRE said this is his area of expertise, and asked what
the trends are for other departments of law in interpreting
these terms.
11:47:25 AM
MR. SNIFFEN explained that 90 percent of the states that have
price gouging laws only have them triggered in the event of some
declared state of emergency. A few states on the East Coast have
price gouging laws that are triggered in the face of "market
emergencies" that don't require a natural disaster - but rather
a financial disaster of some kind. Once the laws are triggered,
most states have laws that say the price cannot be increased
more than a certain amount over what was charged before the
disaster. They try to prevent retailers from taking advantage of
consumers during their most dire times of need. Some states say
that means what other people are charging for the same goods and
services in areas where a market emergency doesn't exist. In
these states, "excessive and exorbitant" hasn't ever been
invoked.
11:49:23 AM
SENATOR HOFFMAN said this legislation seems to be geared for the
refineries, but why doesn't it include other businesses in the
state that don't have refiners.
SENATOR WIELECHOWSKI answered that he considered that, and he is
open to addressing that. But the Attorney General's report
indicated that the gap appeared to exist with the refiners.
SENATOR HOFFMAN said he thought the question to Mr. Sniffen was
regarding gasoline, and his investigation was in that regard. He
didn't think Mr. Sniffen looked at what was happening in western
Alaska and other parts of the state.
11:51:07 AM
MR. SNIFFEN responded that is correct for the most part. But as
part of the investigation he became aware of some of the
practices related to heating fuel and other products sold by the
refineries. He explained that there are only two gasoline
refiners in Alaska - one of them produces a majority of the
gasoline. But there are a number of retailers and distributers,
so the competition among the sellers of petroleum products
becomes better the farther away one gets from the refinery. That
is different in different parts of the state. The Railbelt area
has fairly decent retail competition, but in rural areas there
is no competition.
SENATOR HOFFMAN remarked that is thrust of his concern. Other
areas of the state such as the YK Delta, Bristol Bay, and Norton
Sound have primarily one distributor and the potential for price
gouging exists there as well.
11:52:49 AM
SENATOR WIELECHOWSKI said he would be happy to modify the
language to include that issue.
SENATOR HOFFMAN thanked him, and said he wasn't asking to hold
it up at this stage, but he would like to work with his office
to broaden it to areas of the state that have very little if any
competition.
SENATOR STEDMAN said Southeast Alaska imports most of its fuel
oil from Seattle. His constituents' concern is that some of the
larger fuel buyers can purchase fuel at $1.20 per gallon, and
the pump price is $3.00. The issue is broader than a refinery
issue. Prices in Southeast have come down into its' "normal
spread" over Seattle, but it "was awful inelastic on the
downside." He understands that had to do with some "hedging
business practices." But it is a great concern because a lot of
communities in Southeast have virtually one supplier. He asked
the sponsor also to take a look at broadening the applicability
as the bill moves along.
11:54:53 AM
SENATOR WIELECHOWSKI said he would be happy to do that. He
mentioned that he did get some e-mails from people in Southeast,
Ketchikan in particular. He figured Senator Kookesh would be
interested in Angoon prices as well.
SENATOR STEDMAN asked Mr. Sniffen to respond to the Southeast
portion of his report.
MR. SNIFFEN said the Southeast portion of his report was
limited. He gathered information about energy suppliers of fuel
into Juneau and other points in Southeast Alaska to determine if
there was an economic basis for the prices they charge or if
those prices were the result of some kind of collusion or an
anti-trust activity. There seemed to be economic justification
for the prices that they charged.
One of the concerns he keeps hearing from Southeast consumers,
in Ketchikan in particular, is that they know how much gas costs
in Seattle and that it can't possibly cost that much to
transport it up here. So why is it so much more?
MR. SNIFFEN'S answer is that the amount of profit a business
wants to tack on to their landed price of fuel can't be
controlled through statute. Looking at the component of what it
costs to get fuel to an area is not the way to look at what
prices should be. The prices are what the market will allow.
When there aren't many competitors monopolistic pricing
practices go on, and that is not illegal, which is why this bill
would at least allow him to look at that kind of conduct - to
see if while there is no an illegal anti-trust pricing scheme
going on, that the prices are exorbitant and "they shouldn't be
allowed to charge them."
His conclusion for Southeast market is that there was no
collusion that could be identified from the evidence - and they
looked at quite a bit and interviewed a number of people. It
seems like the prices were the result of big fluctuations and a
lot of "hedging activity."
11:58:47 AM
SENATOR STEDMAN said he understands the hedging mechanisms, and
when you hedge on the wrong side of a bet you can have
substantial losses, and when you have no competition, it makes
it very easy to embed those into your price to recoup. That is a
concern, but from a historical standpoint, Sitka once had two
vendors, and then one purchased the other which created a little
bit of interest. A lot of people in the community expected an
increase in prices with one supplier, but they hoped it would be
backed up with service and the quality of the installation. But
as time went on, more constituents got concerned that what in
fact happened is that they ended up with a monopoly - to their
detriment in general. Although that hasn't been publicly
expressed, it has been expressed privately.
If they were to be able to back up the clock, there would be a
lot of interest in the community to object to mergers like that,
because it puts them in a position of one supplier. A small
operation came in with one fuel pump for a little bit, but when
you try to site a bulk facility in a community it is difficult
and expensive. He cautioned other communities around the state
to not hesitate to speak up if there is consolidation going on.
Petersburg was also consolidated into one bulk plant.
12:01:26 PM
CHAIR MCGUIRE said when the bill first came before the
committee, the concern was trying to define the dollar amount
relative to Seattle pricing. There might be legitimate reasons
for the price disparity, but having this tool is appropriate, as
is any tool to keep the pressure on fair prices for the benefit
of Alaskans is healthy.
12:02:42 PM
DANA OLSON, representing herself, said this issue belongs in the
Attorney General's Office. She has heard a major problem with
inconsistencies regarding 42 USDA Section 2000(d) where a
refinery cannot get a grant and have no grievance procedure.
12:04:44 PM
JEFF COOK, Director, External Affairs, Flint Hills Resources
Alaska, said his previous testimony from February 12 stands, but
with some additional comments on the CS. He was concerned that
removing the 10 percent cap could arguably make it worse for the
refinery. They wouldn't have any idea of what to price to avoid
the ruinous penalties. The world economy and markets have
continued to change for the worse since his February testimony.
His refinery is losing money again and the outlook is uncertain.
International cargo flights are down at the Anchorage
International Airport by 30-40 percent and jet fuel for the
airport is Flint Hills' primary product. He just read in the
paper that Fed Ex has transferred 68 pilots out of the Anchorage
area. This legislation threatens the long term viability of the
refinery.
12:06:36 PM
SENATOR STEDMAN asked if the refinery is running at full
capacity or if they are having shut down issues. The Finance
Committee had testimony from the Department of Transportation
and Public Facilities (DOTPF) concerning the Anchorage airport
and he asked the department for an update on the volumes of
freight and fuel there.
MR. COOK responded that last Saturday they shut down Crude Unit
3, an unprecedented move, because the demand for jet fuel was
down so significantly. They had no further storage capacity and
couldn't market it. He hoped the shutdown was for only three to
four weeks. One year ago they were shipping 80 railcars per day
from Fairbanks to Anchorage, now they are down to 40.
12:08:13 PM
SENATOR STEDMAN asked him to put that shutdown into some scale
so people could understand.
MR. COOK replied that they have three units. Crude Unit 1, the
original one, came on line with construction of the TAPS in
1977; it produces diesel and jet fuels. Crude Unit 2, built in
1984/85, produces gasoline and asphalt as well as diesel and jet
fuels. Crude Unit 3 was built in 1998 and its primary purpose
was to take care of the increased jet fuel demand at the
Anchorage Airport. That would account for one-third of their
production.
SENATOR STEDMAN invited him to join in the presentation to the
Finance Committee with DOTPF as a separate presenter to have
input about the impacts to the refinery. He said he would also
invite the Alaska Railroad.
12:09:39 PM
KIP KNUTSEN, Manager, External Affairs, Tesoro Alaska, said this
CS is a dramatic change since it is now a gouging bill instead
of a price cap bill. He wanted to reserve comment at this time.
He noted that his company would have to spend significant
limited resources to define these terms of excessive and
exorbitant.
SENATOR STEDMAN extended the same invitation to him to attend
the Finance Committee since it is a large issue for the
community of Anchorage.
12:11:40 PM
SENATOR WIELECHOWSKI moved to report CS for SB 54, version S,
from committee with individual recommendations and attached
fiscal note(s). There being no objection, CSSB 54(ENE) moved
from committee.
SB 71-ALTERNATIVE ENERGY FOR PUBLIC WORKS
12:12:17 PM
CHAIR MCGUIRE announced the consideration of SB 71.
DAVE STANCLIFF, Staff to Senator Gene Therriault, sponsor of SB
71, said this bill is simply a piece of legislation to prepare
Alaska for the alternative energy resources that are happening
everywhere around the state. Everyone is familiar with the
Alaska Energy Authority (AEA) report, and Senator Therriault has
several communities in his district that are looking at
something other than fossil fuels to provide energy and heat for
buildings.
The state has a tremendous number of public facilities and DOTPF
involves itself in the designing process of building them. SB 71
suggests that DOTPF, as they consider the design of these public
facilities, look at what may be coming on line and if they think
those resources could play a part in solving some of the energy
problems they could incorporate accommodations for those
facilities in their designs. A good example of that would be
biomass as people from Southeast and Interior Alaska are working
on producing wood biomass to heat public facilities - something
that is occurring in the Lower 48 as well.
MR. STANCLIFF reasoned if a facility is designed with only one
small boiler room and one boiler and it happens to be fossil
fuel, and along comes a biomass source of energy, a retrofit
will be costly and time consuming. Whereas if they had just
increased the size to allow for a secondary fuel source such as
biomass to be used, there will be tremendous savings to the
state. This does not require DOTPF to make those decisions, but
simply requires them to do an assessment and to make a
determination, hopefully in concert with AEA and other folks, as
to what may be coming down the line in terms of energy.
In closing he said Senator Therriault has had him working on
alternative energies issues. The Tok school was about to put in
the first biomass heating system that is estimated to save
$80,000 to $100,000 per year with fuel prices at $3/gal - and
they were $5/gal last year. When folks came out to look at their
utility room, the comment from the AEA engineer is if this
building were just six feet wider and four feet longer they
wouldn't have to add on to accommodate the new facility.
12:16:01 PM
CHIRISTOPHER HODGIN, Project Manager, Department of
Transportation and Public Facilities (DOTPF), explained that
when they implement a retrofit for any viable alternative energy
systems, they would be able to prepare for the costs to
implement them. They won't be able to totally eliminate retro
fit costs, but this bill will help minimize them. When
determining a viable energy alternative system, they would also
like to be able to consider maintenance costs so that the entire
life cycle costs of that alternative can be evaluated overall
with the building when it's constructed.
12:17:54 PM
JEFF HERMANS, Forester, Tok area, Division of Forestry,
Department of Natural Resources (DNR), said he was involved in
the Tok school project that was just funded by AEA. That project
provides four full time jobs in Tok, a special benefit to the
community and the state.
He said that right now diesel is $3.80 per gallon in Tok, its
unemployment is 40 percent and in the outside villages it's 70-
80 percent. Tok has the school, DOTPF, low income housing,
senior citizens, Head Start building, DNR Forestry, Troopers and
the Courthouse - all state buildings - and they use 100,000
gallons of fuel oil per year. In ten years that's $2 million
that leaves Tok and goes to the oil companies!
A local contractor already makes pellets, and if those
facilities used renewable resources such as pellet furnaces,
they could have a bulk fuel pellet contract with them. For a
small business to have a contract for $200,000 of their product
every year would be a substantial benefit. The State of Alaska
says they want to do renewable energy, and the best way to
promote the use of it is to practice it themselves. The amount
of fuel oil being burned by public facilities across the state
is overwhelming.
MR. HERMANS suggested that if the state did start doing this
that it look at public facilities per region instead of "shotgun
effect" over the entire state, because they have to get to an
economy of scale.
12:20:58 PM
DANA OLSON, representing herself, said she faxed testimony on SB
71. She just became aware of an Alaska Energy Authority book
through the Legislative Information Office, and there are a lot
of bills passing. Maybe they should reconsider some of those
bills because they are on documents that are not publicly
available.
12:23:31 PM
MR. STANCLIFF reminded people that the AEA report is available
on the Governor's website.
SENATOR THERRIAULT, sponsor of SB 71, said with the passage of
the alternative funding mechanism last year, the state is
helping with the supply side of alternative energy sources. If
the state builds into the state's facilities the ability to be a
consumer, then it can help on the demand side, too. In
communities like Tok or Glennallen, if there is a garage or a
trooper facility that has the capability of providing heat for
the facility, that provides a base demand in the community which
allows the fixed cost for the pellets to be spread over a larger
demand and lowers the cost for all the private consumers, too.
12:25:11 PM
SENATOR WIELECHOWSKI moved to report SB 71 from committee with
individual recommendations and attached fiscal note(s). There
being no objection, the motion carried.
12:25:54 PM
There being no further business to come before the committee,
Chair McGuire adjourned the meeting at 12:25 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 54 - CS (Version S) Energy.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 54 |
| SB 132 - Bill Packet.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 132 |
| SB 71 - Bill Packet.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 71 |